I'm Lovin' It

“The quality of a leader is reflected in the standards they set for themselves”.
~ Ray Kroc, Founder of McDonald’s

While the Governor of Illinois is being ‘You Tubed’ and shamed across the national media this morning, remember that getting rid of the compromised said leaders of this country is an integral part of the bull case associated with our Investment Theme for a “New Reality” in 2009. Transparency and Accountability will be a winner. Be on the right side of this leadership trade.

If you want to follow the losers, get yourself a chair and a TV set at 5PM EST, and get bogged down by “Fast Money” flashing charts of the early 1970s US stock market. Guys, where were these charts prior to the SP500 dropping 43%?  Do me a favor and stop being alarmist after a US market down day.

These charlatans of CNBC network emotion actually mentioned “behavioral finance” more than once on their show last night – they should spare us the one liner and pick up a book and educate themselves on the topic. As neuroscientist Richard Peterson appropriately points out in his latest behavioral book, “Inside The Investor’s Brain”, being self-aware is an important sign of intelligence. CNBC’s finest all share one unique characteristic – they are unaware.

Barack Obama is seemingly proving to be aware and I think that his standard of self confidence is one that Americans can buy on down days. I bought our 2nd tranche of the SP500 yesterday around the 886 level. There is significant support building at the 881 line, and this lines up pretty well with the political and confidence stats that were issued this morning.

After flashing a very oversold reading of -27 in one of my key sentiment indicators last week, this morning’s Institutional Investor Bullish to Bearish survey popped out of its hole to -21. We measure deltas here at Research Edge, because both math and what occurs on the margin of that math is what matters most to our multi-factor macro models. If you sold into the US market lows of last week or yesterday afternoon, it’s all one and the same by our scorecard – you sold alongside consensus, because you were probably unaware that you have become it.

In a surprisingly positive political poll reading overnight, the Bloomberg/LA Times poll flashed a 7 handle on Americans feeling better about the pending leadership in this country. Seven handle as in over 70% of Americans feel either “hopeful”, “optimistic”, or “proud” of Mr. Obama. After hearing plenty a market and political pundit trash this young man for being nothing but a speech maker, being long this market this morning feels as good as those polls did. I know, I know… polls are polls … and Obamerica is nothing but a place far far away from reality – but guess what, on the margin, I’d rather be there than in the Bushes.

Markets trade on sentiment. Multiples are based on confidence. If you don’t have either, go to cash. Building American confidence that there can be a Ray Kroc grinding away like he was in 1954 when he took over the McDonald’s franchise is what Americans not only want, but need. I am reading a headline this morning of one of the top 5 American muni-bond underwriters (Goldman Sachs) being waterboarded by the press for telling clients to buy CDS on New Jersey’s paper – this is the America of yesterday folks.

Neither Marcus Goldman nor Ray Kroc would have put up with a firm issuing NJ bonds, then advising others to short them. It’s ridiculous behavior. Rather than waking up to the embarrassment of the Illinois Governor this morning, these two Americans woke up every morning carrying the principles of true American Capitalism on their backs.

Chinese Capitalists continue to prove that they have read a book or two about the good old fashioned American days when Kroc would stand on his “handshake with spit.” As crude as that sounds, is as effective as trust is. The Chinese trust themselves. Stocks in Hong Kong raged higher again last night, despite “Fast Money” and Cramer whining about why they can’t be bullish on the USA yet. The Hang Sang closed up another +5.6% at 15,577, taking its “Re-flation” since the October 27th capitulation low to a +41% move! What? Did some investors miss that?

We remain long China, which also closed up another 2% overnight, taking its run-up in the last month alone to +21%, and Hong Kong via the FXI and EWH etfs. The best part about those analyzing China right now is that they are staring in the rear view mirror. Last night, China printed a horrendous export number of -2% year over year for November… but guess what? … its December. Stock markets do not trade on yesterday’s news. They are some of the most stealth leading indicators of the future that I have in my macro models.

The future in this country looks less dark than it did 3 months ago – that’s why I have taken our Asset Allocation model’s position in cash down from 96% to 54% in the last 3 months. We have a 12% position now in US Equities. On the International side, we own more China than any other country and we are also longer Commodities than we have been for all of 2008.

While “Fast Money” is flashing you those 1970’s charts, flash them a picture of one Ray Kroc buying the San Diego Padres on the cheap in 1974, or one of the many real estate sites he acquired while the lemmings were selling to him low. This is all part of that “Behavioral Finance” idea that dawned on Dylan Radigan last night.

Last night is over - I’m looking forward to today and tomorrow. I’m excited for the confident and liquid long American Capitalist who had his or her feet on the floor early this morning. I’m long San Diego real estate at a buck a foot. That’s in line with Kroc’s value menu, and “I’m Lovin’ It!”

Have a great day,
KM

Long ETFs

SPY-S&P 500 Depository Receipts – CME front month futures contracts rose over 1.5% this morning reaching a high of 906.80 prior to 7AM.

XLV Health Care Select Sector SPDR – An advisory panel to the USDA unanimously backed a Genzyme Corp (XLV:1.6%) osteoarthritis drug.

GLD -SPDR Gold Shares –LME spot gold rose 1.3% to 787.11 per metric ton in trading this morning.

OIL iPath ETN Crude Oil – NYMEX front month Light Sweet Crude contracts traded as high as $43.49 this morning.

EWG – iShares Germany –A $15 billion government rescue of the US automobile industry is said to stabilize the parts supply chain in the US for German automakers BMW and Daimler. The DAX is down slightly in trading this morning to 4762.79, or -0.33%.

EWH –iShares Hong Kong –The Hang Seng closed up 824.52, or 5.59%, to 15,537.74.

 FXI –iShares China – China’s PPI rose in November 2% Y/Y, half the pace estimated by economists, after gaining 6.6% in October, representative of decreased commodity and energy costs. The Yuan rose to 6.86 against the dollar from 6.8651 before the producer-price announcement. The CSI300 closed up 55.54, or 2.74%, to 2096.39.

Short ETFs

EWU – iShares United Kingdom –The FTSE100 is trading slightly to the downside this morning to 0.86% at 4342.98, led by retailers, after Morgan Stanly said sales during Christmas could be the worst in many years.

UUP – U.S. Dollar Index –The Pound rose to 1.4796 USD, while the Euro remained close to flat at 1.2932 USD.

FXY – CurrencyShares Japanese Yen Trust –The Yen fell to 119.84 EUR and 92.71 USD  in trading this morning  while the Nikkei closed up 3.15% on expectations the government will extend aid to real estate developers.


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